World Bank’s growth prognosis for India
Context:
Recently, the World Bank, revised India’s GDP growth forecast to 7% for the year 2024-25 aligning much closer but slightly below the Reserve Bank of India (RBI) and Fitch Ratings.
- This invites reassessment of India’s economic policies in trade and job creation so as to sustain the growth.
Relevance:
GS-03 (Economy)
Prelims:
- China plus one Strategy: It refers to the global trend where companies diversify their manufacturing and supply chains by establishing operations in countries other than China
- World Bank:
- It was created in 1944 along with IMF which was also created in the same year.
- It was initially known as the International Bank for Reconstruction and Development (IBRD) which later became the World Bank.
- It has 189 countries (India is a member)
- India was also the founding member amongst the other 44 countries that signed the agreements at Bretton Woods.
It releases important reports like – Human Capital Index, World Development Report, Doing business, Global Economic Prospects, Global Financial Development Report, Poverty and Shared Prosperity, etc
Dimensions of the Article
- World Bank’s Growth Expectations for India
- Concerns and Challenges for India
- Trade Strategy: Need for a New Approach
World Bank’s Growth Expectations for India
- The latest India Development Update expects the country’s GDP to hit 7% for the year 2024-25 from 6.6% in the last year. This revision aligns with the projections of the IMF and the Asian Development Bank (ADB). However, it is below the RBI’s and Fitch Ratings’ forecasts of 7.2%.
- Although there lies a stark disruptions in the supply chain and fluctuations in the commodity prices, World Bank expects India to perform strongly.
- The World Bank has projected private consumption to increase by 5.7% and the agriculture sector to grow by 4.1% this year.
- It is anticipated that a strong recovery in the agriculture sector would boost rural demand which invariably will bring private investments that will help maintain GDP growth to hover between 6.5% to 6.7% in the coming years.
Concerns and Challenges for India
- Non Farm Jobs:
- As mentioned in the Economic Survey 2024, the Indian economy needs to generate an average of nearly 7.85 million jobs annually until 2030 in the non-farm sector.
- Although, World Bank’s figures have a positive outlook on India’s growth but if India does not create enough non-farm jobs, it is difficult to exceed the forecasted growth rates.
- Production Linked Incentive (PLI) schemes and Employment-Linked Incentives:
- The Indian Government has allocated Rs 6200 crore for the PLI scheme during the interim budget for FY25.
- The World Bank recognizes these efforts but warns that it might not be enough to generate the required scale of employment for India’s large and growing young workforce.
- Trade strategy:
- Despite being one of the largest economies globally, its share in International trade doesn’t match its economic size.
- Recently, China stepped back from the labor-intensive manufacturing, which paves way for India to utilize this opportunity.
- “China plus one” strategy: Many global firms are currently adopting this and is a significant opportunity to India as well. However, the declining trend in export-related jobs over the last decade and a shift towards more capital- and skill-intensive exports could limit job growth.
Trade Strategy: Need for a New Approach
- India’s step towards trade facilitation and free trade agreements (FTAs), especially with the European Free Trade Association (EFTA), have limited potential in unlocking new trade opportunities.
- To improve India’s trade position, the World Bank suggests reducing tariffs, non-tariff barriers, and curbs on Foreign Direct Investment (FDI).
- It also suggested India to encourage multilateral and plurilateral trade agreements like the Regional Comprehensive Economic Partnership (RCEP) which could help the country to integrate into global value chains, increase its share of global trade, and create more employment opportunities.
Way Forward
- Focus on Job Creation: According to the Centre for Monitoring Indian Economy (CMIE), India’s unemployment rate was 9.2% in June 2024. India should focus on comprehensive policy framework to create more non-farm jobs beyond current PLI and Employment-linked schemes.
- Revise Trade Policies: India should re-value its trade policies alongside considering multilateral trade agreements that could offer new opportunities for export growth and boost trade potential.
- Enhance Rural Demand: A stronger rural economy can spur private consumption and investment. Hence, strengthening the agriculture sector by providing better infrastructure, integrating modern technology in farming, etc is very crucial.
- Strengthen Economic Resilience: India should focus on diversifying trade partners, creating buffers for global commodity price shocks, and maintaining a prudent fiscal and monetary policy.
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